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Thursday, 29 November 2012

Denmark presses ahead with Lorry Road Pricing

Whilst Copenhagen's latest attempt to progress congestion pricing appears to have stalled, Denmark is pressing ahead with heavy vehicle tolls in the form of a distance based road user charging system.

The project is led by the Ministry of Taxation and I have kindly been supplied information from the Project Manager Klaus Østergård Jensen available (only some in English) on its website.

Key facts

The policy objectives are to generate additional revenue, apply the "polluter-pays" principle and implement as soon as possible whilst minimising risk.

The charge will apply to all Heavy Goods Vehicles (HGVs) having a maximum permissible laden weight of 12 tonnes or over;

There are 34,000 trucks registered in Denmark that will be liable;

About another 80,000 trucks registered outside Denmark will be liable;

3,800 km of road will be subject to the charge (covering motorways and trunk roads);

Estimated price per km will be €0.20 (D.Kr 1.49, US$0.26/km or US$0.42 per mile);

1.6 billion vehicle kms are estimated to be moved by trucks 12 tonnes or over by 2015

The tariff will be set as a calculation of: infrastructure costs per km + administration costs per km + environmental costs per km.

The charge will replace Denmark's participation in the Eurovignette (which charges HGVs on the basis of pre-purchased time periods on the trunk roads network - prices here). The Eurovignette is a trans-national road user charge applied in five EU Member States that covers usage of roads in all of those countries with one charge. The Eurovignette will no longer apply in Denmark.

The infrastructure cost calculations will need to be carried out to satisfy the European Union Directive 1999/62(disclaimer - I have advised the European Commission on the implementation of that Directive in several Member States) which provides a framework for calculating the appropriate allocation of costs to HGVs for tolling purposes. There will be two broad vehicle categories:

- Vehicles with four or more axles;

- Vehicles with three or two axles.

Presumably, following the German approach, the higher tariff will apply to the vehicle with more axles on the fair presumption that it is most likely to be heavier.

Administration costs will presumably be a function of the contract with the provider and operator of the tolling system.

The environmental factor will be based on a three-tiered charge with the cheapest tariff applying to vehicles classified as having Euro VI engines, the middle tariff for those EEV, Euro V, Euro IV and "retrofitted" Euro III engined vehicles, and the highest tariff for all vehicles with a standard Euro III engine classification or lower.

65% of all truck traffic is carried on the network that is to be charged, which indicates a not insignificant amount of delivery activity. Bear in mind that Denmark is a transit nation for traffic between the European mainland and the Scandinavian peninsula. One of the issues remains is that there are a number of cases of local roads that run parallel to major highways that may see significant diversion of traffic when the toll is introduced. It is understood that the Government is considering options as to how to address this (presumably either imposing the toll on those roads as well, or removing it from highways with such a risk).

Roads subject to Denmark's lorry road user charge

Procurement is to be through a Public-Private Partnership with the intention being that a Special Purpose Vehicle be set up to be responsible for the design, testing, implementation and operation of the charging system. The expectation is that investors will finance the capital costs of the system, and be provided "periodic payments" for the performance of collecting the revenue for the Ministry of Taxation. The proposal is for a minimum contract period of 10 years, which covers the initial implementation and is likely to easily exhaust the depreciated life of the charging equipment (which typically becomes obsolete within 5-7 years). In the longer term it may be interesting to see if a more diversified, competitive service provider structure is adopted, to put pressure on costs and customer service standards.

What is to be put out to tender appears to be the charging service (from supplying and installing equipment, to establishing and managing accounts, and collecting revenue) and the revenue assurance service (verifying payment has been collected and identification of those who do not pay). Enforcement and scheme ownership and management will remain with the state. It appears that there will not be competing service providers.

A very simple depiction of the expected high level procurement relationship is seen here:

Denmark HGV Road User Charging basic contracting structure

Legislation is to put through Parliament in 2013, with the intention that the tendering and contracting process proceeding from Spring 2013 through till the end of that year. The summary schedule is depicted below:

Denmark Truck tolling high level implementation schedule

Comment

The Danish programme has parallels to several of those already in place, such as Germany and Slovakia, and whilst it is not technology specific, I would be surprised if it did not use a GNSS (i.e. GPS) based system. Despite such systems becoming more commonplace, the keys to making it success will be around:

- High standards of customer service, particularly for the implementation phase and particularly for foreign lorries;

- Serious discipline on operating costs (it is no coincidence that the operators of some of these systems have done remarkably well out of them, so there should be plenty of competition from investors, but also pressure to get transaction costs down within three years of the inauguration);

- Serious, detailed work on the diversion risk, based on some surveys of local AND foreign lorries using high risk parts of the network, and so designing the scheme to minimise this risk.

I sincerely wish Denmark good luck in implementing the system, and will provide updates when they become available. Once it is implemented, it will join Switzerland, Germany, Austria, Slovakia, Poland, New Zealand (and France and Belgium both forthcoming) in having nationwide distance based road charging systems for trucks.

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What is road pricing?

Road pricing is any system that directly charges motorists for the use of a road or network of roads. Traditionally it has meant tolls on single routes, particularly crossings such as bridges or tunnels. More recently it also includes area, cordon and zone pricing of urban areas, and distance and time based charging of whole networks. It does not include fuel or tyre taxes, or taxes on ownership or purchase of road vehicles.